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TMI Blog1982 (8) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed mercantile system of accounting with regard to its normal banking business where the interest amounts are realised periodically without any difficulty, in respect of sticky accounts which are determined on the advice of the auditors and the Reserve Bank of India, the assessee-bank right from the inception, was following a special system of accounting, whereby the respective interest amount of each of the sticky accounts is only debited to the customer but, simultaneously credited to the 'interest supense account'. In this type of cases, the interest income is accounted for by the assessee-bank on actual realisation basis. Thus, when customer pays both the principal and the interest pursuant to the mutual discussion, the interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method of accounting was regularly followed by him. The decision of the Kerala High Court in State Bank of Travancore v. CIT [1977] 110 ITR 336, relied upon by the ITO is distinguishable and the aforesaid additions could not be made in view of decision of the Tribunal, Cochin Bench, Cochin, in [IT Appeal Nos. 822 (Coch.) of 1976-77 and 600 of 1977-78 decided on 23-9-1978] as also the circulars of the CBDT relied upon by the assessee and those circulars even though they were withdrawn on 20-6-1978, being in force in the year under consideration and so were binding on the ITO in view of the ratio of the decision of the Full Bench of the Kerala High Court in CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334. 14. In the appeals filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is really little probability of the loans being repaid. The CBDT, according to the said circular, considered it desirable to extend the principle just mentioned hereinbefore, to banks which instead of transferring the doubtful debts to a suspense account credited the interest on such debts to that account, provided the ITO is satisfied that the recovery is practically probable. It is correct that the said circular was withdrawn on20-6-1978, but the said circular was very much there not only at the beginning of the year under consideration but, throughout the entire year ending 31-12-1974/31-12-1975. Since the said circular was in force on the dates just mentioned hereinbefore, the same was binding on the ITO in view of the ratio of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine." 18. It is not the case of the ITO in the assessment order that the proviso to section 145(1) is attracted in the present case. We, therefore, now apply our minds to the main provision of section 145(1). Primarily, amongst Indian businessmen, there are currently two principal systems of boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing a method of accounting in respect of its business as a banker, namely, to normally follow mercantile system of accounting with regard to normal banking business, where the interest is realised periodically without any difficulty, but in respect of sticky accounts, the bank follows a special system of accounting, i.e., debiting the customer and crediting the 'interest suspense account'. The decision regarding a particular advance being sticky or not, is taken by the bank on the advice of the auditors and the Reserve Bank ofIndia. In this type of cases, the income is accounted for by the assessee-bank on actual realisation basis. To say in other words, the assessee has been following a hybrid system of accounting in the manner explained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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